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What Lenders Look for When Reviewing a Loan Application

We often get the jitters when we apply for a loan, whether it’s for a car or a new home. Those jitters come from not knowing what the lenders want from you. Are they looking at your credit history? Your capacity to pay? Is your family’s situation going to matter? If you’re a breadwinner, do you have a smaller chance of getting approved for a loan? How about your employment history?

Every lender has a different set of qualifications for a loan. A used car franchise, for example, will simply look at your monthly income. The point for them is to establish the fact that you can pay off the loan in time. But if you’re going to apply for a bigger loan, you’ll have to provide the bank or lender with your annual tax returns, bank records, credit history, and even collateral. The larger the amount you’re applying for, the more stringent the requirements will be.

Credit History

Fix your credit report before submitting this document to the lender. If there are erroneous entries on your credit report, make sure that they are fixed first. These wrong entries can damage the chances of you getting approved for a loan. Your credit history will show lenders how responsible you are in paying off your loans and debts. It will give them a good picture of where you stand credit-wise.

Cash Flow

The lender’s primary concern is whether your monthly cash flow can pay off the loan. They won’t look at how much debt you have incurred or pay off monthly, but they would want to know if you can pay off the money they are going to lend you. The cash flow can come from a variety of sources such as your job, business, investments, and even inheritance. When getting ready to submit documents pertaining to your cash flow, you should include your bank statements, too. These will tell the lender that you’re receiving a significant amount of money every month.


credit score

Some lenders require collateral if you’re borrowing a huge sum of money. The collateral stands as the borrower’s pledge to repay the loan. It is usually a piece of property that has almost the same value as the money you are going to borrow. In case you default on a loan because of a variety of reasons, you will lose your collateral.


Assessing your character is more subjective. It depends on how the lenders see you as a borrower. Some of the things that the lenders will look at are your prior business or employment experience, relationship with past lenders, referrals from community leaders and professionals, and involvement in the community. The lenders will also ask to meet you in person so that they can interview you and gauge your character.

It takes time to prepare your financial documents. Before you try to apply for a loan, make sure that all your documents are ready so that you don’t need to come up with them at the last minute. Also, you can gauge if you have the capacity to pay off the loan. Don’t apply for one if you’re not financially able to fulfill your obligations.

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